Canada Denies Patent For Drug, So US Pharma Company Demands $100 Million As Compensation For 'Expropriation'

from the money-for-nothing dept

An increasingly problematic aspect of free trade agreements (FTAs) is the inclusion of investor-state provisions that essentially allow companies -- typically huge multinationals -- to challenge the policies of signatory governments directly. The initial impulse behind these was to offer some protection against the arbitrary expropriation of foreign investments by less-than-democratic governments. But now corporations have realised that they can use the investor-state dispute mechanism to challenge all kinds of legitimate but inconvenient decisions in any signatory nation. Here's a good example of how this provision is being invoked to contest a refusal by Canadian courts to grant a patent on a drug, as explained on the Public Citizen site:

Eli Lilly and Company has initiated formal proceedings under the North American Free Trade Agreement (NAFTA) to attack Canada's standards for granting drug patents, claiming that the denial of a medicine patent is an expropriation of its property rights granted by the agreement. The investor privileges provisions included in NAFTA and other U.S. "free trade" agreements (FTAs) empower private firms to directly challenge government policies before foreign tribunals comprised of three private-sector attorneys, claiming that the policies undermine their "expected future profits." Eli Lilly's move marks the first attempt by a patent-holding pharmaceutical corporation to use U.S. "trade" agreement investor privileges as a tool to push for greater monopoly patent protections, which increase the cost of medicines for consumers and governments.

The claim that denying a patent is somehow an "expropriation" of property is pretty extraordinary. Patents are intellectual monopolies that are granted by governments; Eli Lilly does not have such a monopoly in Canada unless the government there grants it, which it does by applying its well-established laws and rules. Here's the background to the current dispute:

Eli Lilly launched its NAFTA attack after Canadian courts invalidated Eli Lilly's monopoly patent rights for an attention deficit hyperactivity disorder (ADHD) drug, having determined that the drug had failed to deliver the benefits the firm promised when obtaining the patent. However, in its formal notice of intent to take Canada to a NAFTA investor tribunal, Eli Lilly makes clear that it is not only challenging the invalidation of its particular patent, but Canada's entire legal doctrine for determining a medicine's "utility" and, thus, a patent's validity. While pushing for a patent standard that would raise medicine prices, Eli Lilly, the fifth-largest U.S. pharmaceutical corporation, is demanding $100 million from Canadian taxpayers as compensation for Canada's enforcement of its existing medicine patent standards.

Basically Eli Lilly failed to deliver its side of the bargain, since the drug doesn't work very well, so Canada refused to allow the company to retain a patent that was contingent on it being effective. What's worrying is that the drug company's present action is not just challenging that decision, but the whole approach that requires drugs to work well enough to deserve a patent -- not unreasonably.

The case will not be heard before any ordinary national or even international court, with all that this implies in terms of transparency and fairness, but by a very special kind of tribunal:

The tribunals are comprised of three private sector attorneys, unaccountable to any electorate, who rotate between serving as "judges" and bringing cases for corporations against governments. The tribunals operate behind closed doors, and there are no conflict of interest rules. The tribunalists are paid by the hour and governments are often ordered to pay for a share of tribunal costs even when cases are dismissed. There is no limit to the amount of money tribunals can order governments to pay corporations. There are very limited appeal rights.

The entire approach is clearly biased towards companies and against the national governments, so the following facts will come as no surprise:

Under U.S. FTAs and related deals, private investors have already pocketed over $3 billion in taxpayer money via investor-state cases, while more than $15 billion remains in pending claims.

However, bad as things are currently, they promise to get even worse if the TPP agreement is finalized in line with leaked versions:

Ironically, while Canada faces an investor-state challenge from Eli Lilly, the country has joined negotiations to establish the TPP, which would expand the investor-state system further. To date, Canada has paid more than $140 million to foreign investors after NAFTA investor-state attacks on energy, timber and toxics policies. Part of Eli Lilly's claim against Canada is that the invalidation of its patent constituted an expropriation of its "investment." NAFTA does not list patents in its definition of a protected "investment," although some analysts have long worried that the broad, vague NAFTA definition could be used to attack medicine patent policies. But in the TPP, the proposed Investment Chapter explicitly names "intellectual property rights" as a protected "investment."

That is, TPP aims to formalize precisely the argument that Eli Lilly is trying to make using some rather far-fetched legal logic, discussed at length in the Public Citizen post quoted above. Moreover, it seems highly likely that a similarly far-reaching investor-state section will be included in the new Transatlantic FTA (TAFTA), now being discussed more widely.

The central problem with these investor-state provisions is that they elevate companies to the level of entire countries. Secret, unaccountable and biased tribunals with unlimited powers then enable them to overturn democratic decisions and legislation passed to preserve things like public health or the environment, simply because they would reduce corporate profits. And yet few people are even aware that such investor-state provisions exist, despite their massive impact on the lives of millions. That's a hugely troubling combination for the future.

Aren't we overlooking something?

While I will agree with you that this system doesn't make a lot of sense, and that Eli Lily should make drugs that actually work, let's not forget that the US Government and the Canadian Government entered into these treaties with these ridiculous rules spelled out in black and white. It's not like one side is all the sudden saying "you failed to read the small print" and is taking advantage of the other side for it. Both governments entered into these treaties will full knowledge of what the rules were and what companies could (and probably would) do if they felt that either government ruled incorrectly. Just for grins, have you researched if any Canadian Companies have used these same rules to their own benefit? I find it highly unlikely that it's just the big bad US Companies that are taking advantage of this incredibly stupid idea, and even if it happens that only the US Companies are doing this, again, Canada and the US entered into this agreement knowing exactly what was written into it. If they didn't like the rules, why did they sign that treaty?

Now, I'm not saying I'm for big corporations doing shitty stuff that will cost tax payers money, I'm merely pointing out that this Treaty wasn't something one side forced the other to sign without letting them read said Treaty. If that were the case, Canada would be in front of an International Tribunal having the Treaty nullified. If the Canadian people don't like the Treaty their Government entered into with the US Government, then they can do what the US Citizens are allowed to do, vote in a new government and have said Treaty to no longer be in their best interest and will no longer abide by it.

Goes to show you, that it's not just the US that has citizens that would rather complain loudly then actually get off their collective couches and elect representatives that will stand for what the Citizens do.

You're not entitled to potential future profits. Period.

claiming that the policies undermine their "expected future profits."

Except that's not expropriation. Expropriation is taking some property you already had. Diminishing "expected future profits" is not expropriation. You are not entitled to "expected future profits"; you only have property rights in what you already own.

Think of the ridiculous outcomes that happen otherwise. Government health inspectors shutting down a restaurant location? "Expropriation" from the chain's mother corporation. Government wins an antitrust action against a corporation, forcing it to let competitors into the market? "Expropriation". Etc.

The anti-expropriation provisions in trade agreements should explicitly be limited to just that: expropriation of property already held by the company in that territory. And that means real, not imaginary, property: buildings and land holdings and money and other tangible assets. And it means actual takings, not actions that might devalue that property indirectly. (If there was entitlement to not have one's property devalued, it would give rise to a private right of action against, say, posters of negative reviews, or a competitor opening a location directly across the street from one of yours, or etc.)

And those clauses should also be amended to require a real, proper court hear all cases -- I imagine the WTO has some sort of tribunals for handling trade disputes, or there's always the Hague. Loser pays the court costs.

Re:

So, if this sort of thing turns out to work, would it mean that if one country accepts the patent, the other has to accept it as well? Or does it go further, so if Mexico, the U.S. and Canada all decline to grant a patent, does the company get to sue all three countries to force them to accept the patent?

Re:

@ #2

the US entertainment industries have been doing this for years, it's just never been admitted, is kept from being news because the media companies are owned by the same members in the industries and as soon as there is any leak, those industries do what they do best, shout their bullshit and lies loud and long and prevent any counter claims!

Re: Aren't we overlooking something?

That's because they don't tell the average citizen about this stuff, it's usually negotiated behind closed doors. The politicians have their motivations and reasons (lobbyist money, insider trading law exemptions, associate business partnerships). When people do catch a whiff of what's going on through leaks or combing through documents the average person has no time for and the protestors do show up they get put into protest zones and the he media portrays them as wackos.

Do you really expect the average citizen to stay on top of these things?

'"The entire approach is clearly biased towards US companies and against foreign governments"'

how many times has this been said? how often has this been found to be true? when are governments from around the globe going to wise up and stop helping the USA rather than their own citizens, companies and countries?

it just seems that the US cant even right a law that does what it is supposed to without being a total fuck up!! if those in Congress that normally right laws cant do it properly, the tasks should be left to those that can!

Re: Aren't we overlooking something?

Corporate takeover

This is yet another example of the danger corporations have on the free world. What is needed is a swift and decisive blow to the corporate world, a roundup of CEOs who are then frog-marched into a holding pit to be tried for treason against humanity.

Re: Aren't we overlooking something?

'big bad US companies'

These corporations are not loyal to US only as much as it bring them boodles.. Many of them prefer to register in Ireland where they can dis the US and peoples by dodging the taxes. They can be seen on the album cover of Steely Dan, Royal Scam.. towering over the homeless man with holes in his shoes. And thankful he has shoes he is, logging some horizontal ZZZs..

I would demand compensation as well under circumstances such as this where the court apparently decided that the use of a medication for the treatment of ADHD was simply "not good enough" to meet the court's criteria.

No medication works perfectly for all classes of persons with a medical disorder, and in classes where it has been tested and shown to have efficacy, not everyone in such classes experience positive pharmacological effects for any number or reasons.

Change the Law

There always has to be the element of risk-reward or protection-liability or rights-responsibilities. So just change the law so that patent holders (those that are granted special rights "monopolies") have ALL the liabilities for product defects no matter who manufacturers them, if the problem was specifically patent related.

So for instance if there is a class action suit because the product is discovered to have caused health problems of some kind, then it is only Eli Lilly that gets sued for everyone's product under the patent license. The problem with the patent system is that it grants very special rights without extracting any responsibility liabilities.

Re:

Re: Aren't we overlooking something?

You don't really see where this is going do you? Typically the US points the finger at the so called corruption of other nations, and the "OH TERRORISM" while all the time hiding their own corruption and terrorism. This is just bringing the corruption out into the light of day, under the guise of legal proceedings. Don't you think that any half witted citizens know that?

That the country that ballyhoos the "rights of the people" is probably one of the countries where the people have the least rights, and corporations have the most. And where in fact it is the corporations that create the "illusion" of freedom for the masses.

Look at what is going on in Europe between corporations and citizens, it will be the rights of the citizens that trump every time. i.e. patents only matter if they benefit society more than the patent holder, is the ruling general leanings. Copyrights only matter if they don't interfere with the creative rights of others etc. etc. It's time that the good old US wakes up and gives the head a shake, and sees clearly what direction the world is headed, and they are not on the train.

Patent

You guys are missing out on whats actually going on here. Eli Lilly has refused to sell its medication at the below cost price the canadian health care system is demanding. Canadian law say that when this happens they can void patents or refuse to grant them. Canada just trying to shack down the company and eli's refusing to lay down and roll over. The canadian gov't is corrupt and expect the citizens of the US to subsidize drug costs for its failed health care system.

Re: Patent

Must be another corporate brainwashed citizen, why don't you suck up more of those chem-trails, or check out you digs in the FEMA camp. There has never been any anti-trust cases proven against the American Corporations right? Yes it is all just a big world conspiracy against the innocence of Corporate America, RIGHT? Americian Corporations are all just innocent victims, Monsanto tried their crap in Canada too, but they lost in the end, (just don't understand persistence, against bullying) just keep the GMF and chemical crap south of the border and poison the brain dead. (Vietnam was about persistence against bullying, it is the larva of a fly that kills the lion in the end.)

Re: Oh noes! my imaginary profits !

If you read the facts associated with the case, Eli Lilly had in hand a Canadian patent for the medication. A Canadian-based manufacturer of generic drugs sought to invalidate the patent so that it could manufacture it itself. The patent was invalidated using a legal theory apparently unique to Canadian law, a theory that appears to butt up against the margins of international norms associated with patent law.

It appears that it's not that it doesn't work necessarily. It's that they didn't prove that it works. It looks like it was initially developed to be used to treat depression but the trials for that treatment failed. It was at that time that based on some of it's properties (being similar to the properties of other compounds) they ASSUMED it would work for treatment of ADHD and just claimed that it did but failed to prove it with a thorough follow up trial. Since the second patent is a based on the new use built off of the first one and the first one failed to work, without a sufficient proof of it working for the new patent, it falls apart.

I guess they just didn't buy enough politicians in Canada to get them to rubber stamp it like they did in the US.

Re: Re: Oh noes! my imaginary profits !

I agree with you to a point. If it just DIDN'T work, why would a generic manufacturer seek to invalidate the patent? However, the facts show that in the rush to get the patent Eli Lilly didn't sufficiently PROVE that it works in the appropriate time. They cut corners, made assumptions and then later half-assed a clinical trial to try to give lip service to the patent process. This is entirely THEIR fault that they didn't do the appropriate work to get the patent correctly. Now, after they tried to abuse the patent process, they are trying to abuse NAFTA to punish the government for calling them on their bullshit.

Re: Re: Oh noes! my imaginary profits !

But since when has US Corporations respected National Sovereignty? They pump the public full of ideological crap about Iraq having a connection to 9/11, and about WMD etc. etc. Not the plain truth which is "we are greedy bastards and we want to steal Iraq's oil". (Spin, spin, and more spin.) Cover up after cover up, so nothing is ever like it seems. Eli Lilly will get their day in court and their real motive will be exposed. GREED!!!

Re: Re: Oh noes! my imaginary profits !

And as far as the "norms of patent law" I guess you then must mean that the "norm" for patent law is for it to be abused... regularly... without question by big corporations that provide substantial incentives to governments globally to look the other way and let the abuses slide.

Re: Aren't we overlooking something?

While I don't disagree with you, I also as that you realize that there is limits to what the average lay person can know compared to the people in the government and the corporation that screw them over.

What I mean is that not everyone has access to this rarefied knowledge or the experience to deal with it.

Re: You're not entitled to potential future profits. Period.

And it means actual takings, not actions that might devalue that property indirectly.

So the government is free to take actions that devaule the property so when they actually take it and owe 'fair market value' they get a steep discount? Nope, that won't be abused at all.

If there was entitlement to not have one's property devalued, it would give rise to a private right of action against, say, posters of negative reviews, or a competitor opening a location directly across the street from one of yours, or etc.

Neither of those things devalue the property. An actual analogy would be suing someone for blocking a view, which does lower the value of the property and is actionable under some circumstances.

I want to scream because I'm so goddamned angry right now. WHO THE FUCK ARE THESE PEOPLE AND WHY DO THEY DESERVE THE FOOD OFF CANADIAN TABLES TO COMPENSATE FOR THEIR IMAGINED FUTURE PROFITS? %$@#&% UR PROFITS RLLLYYYY HARD!!
IP needs to be abolished and it needs to happen soon. The proletariat do not need to be paying for the golden thrones of the bourgeoisie any longer.

Re: Re:

Re: Re: You're not entitled to potential future profits. Period.

So the government is free to take actions that devaule the property so when they actually take it and owe 'fair market value' they get a steep discount? Nope, that won't be abused at all.

They can't deface or vandalize the property itself, of course; but restricting them from changing something else nearby (e.g. spoiling a view with new electrical transmission towers) would unduly interfere with their task of maintaining and expanding infrastructure, and restricting them from passing laws that might affect a business model (e.g. passing a pollution tax) would unduly interfere with their task of regulating negative externalities and forcing internalization of their costs.

Neither of those things devalue the property.

They reduce its value to its owner, who may end up having paid more for it than it's now worth to them. They may reduce its value to potential purchasers, as well, reducing what the owner can sell it for; a fully-kitted out restaurant that is now in an area with too many competing restaurants to easily be made profitable by any owner, say, or the copyright in a movie that's been roundly panned by critics.

Re: Aren't we overlooking something?

The people of Canada and of the United States no longer have the ability to, in the words of Chris Hedges "Vote against the interests of Goldman Sachs". So I'm not sure how voting would alleviate this problem. Corporations are clearly more powerful than the individual countries in which they operate, countries could change that, but it will not be as simple as voting in the next election or even finding candidates that are suitable for enacting such changes.

Re: Re: Oh noes! my imaginary profits !

Let's go a bit further. What exactly was the "bargain" struck by Canada and the company when it filed its application for a patent? I daresay the "bargain" was for the company to disclose an invention and Canada to grant a patent if the same statutory requirements applicable to all inventions were met (here in the US generally 101, 102 and 112). This case is not about something that does not work (because it does, but like any pharma product it does not do everything for everyone), but as you note about a generic manufacturer who wants to take away for its own benefit something done by another.